Business

Banks warns Australia’s labor shortage at crisis levels

It is hitting small business particularly hard at a time when a range of government support measures implemented during COVID-19 are about to be removed.

Alexi Boyd, chief executive of the Council of Small Business Organisations, says the shortage of labor is causing a strain on small businesses unable to compete for staff.

‘Profitless boom’

“Economists are saying things are going gangbusters, but small businesses can’t take advantage because they don’t have the workers and [they have] issues with supply chains constraining their ability to grow and to innovate,” she says.

“It’s a contraction, that’s a real concern. We’re seeing it across business sectors – they can’t take advantage. It’s almost like a profitless boom.

“In a lot of cases, those small businesses are completely overwhelmed and may very well, through sheer exhaustion, walk away from strong, viable businesses because they’re just getting to that tipping point.”

Boyd, who is no relation to Chanticleer, expressed despair the government was not taking any action to address the worker shortage crisis. She also called on the banks to recognize the issues facing small business.

She said her organization had been unable to get the government to focus on the worker migration problem.

Urgent call to restore migration

Boyd called on the banks to “re-engage with their small business customers and understand what it is they’re going through right now, as opposed to what was happening three years ago in the small business economy”.

There are anecdotal reports that companies faced with a shortage of workers are investing their energy and resources into retaining their best staff and not investing for growth.

There could be a broader impact on the economy from these strategic moves because if business owners opt to sweat their existing assets rather than expand, it will feed through into lower economic growth.

National Australia Bank chief executive Ross McEwan set the tone for the Summit with a call for urgent action on bringing in more migrant workers and a warning about the impact of rising interest rates.

He laid out the following compelling statistics: net migration fell last year by about 90,000 people; there are 500,000 fewer temporary migrants and half as many international students in Australia now, compared with 2019; there are 400,000 job vacancies, the highest level on record, and almost double the pre-pandemic peak.

“Restoring migration is critical to easing labor and skill shortages as well as contributing to economic growth. This is the one the most important, urgent issues that the new government should focus on,” he said.

“And I do acknowledge the efforts already under way to do exactly that.”

The day before attending the Summit, McEwan hosted a lunch in Melbourne for 20 NAB business customers who provided him with a timely assessment of the state of play in the economy and issues of concern.

The biggest issue they raised was the difficulty in finding people to work in their businesses.

“Every one of them had a difficulty of finding people to work in their business, and it wasn’t for the want of trying or, for their mind, a matter of money,” he said.

“It was just there aren’t enough people around.”

Earlier, McEwan said a survey of 1040 NAB customers found that a third of businesses said they couldn’t hire the people they need, and they were unable to retain or train staff quickly enough.

He said NAB had 700 vacancies in its technology division and this was forcing the bank to rethink the way it implements technology solutions.

NAB looks to Vietnam, India

It was impossible to find digital, data and technical engineers, forcing NAB to supplement its normal recruitment program with internal education and training, including training 7000 people in cloud computing.

In response to the worker shortage, NAB has converted an outsourcing center in Vietnam into a regional innovation center to attract more people to join the bank.

NAB is also considering doing the same in India, where IT employees are employed by third parties.

Banks challenged on fossil fuel lending

McEwan says he is considering finding ways to source IT staff from India and Vietnam by helping them with visa applications.

The other big themes at the Summit were climate change, potential credit issues in the housing market, and innovation in payments.

School student Christopher Black created a stir when he confronted both McEwan and Commonwealth Bank of Australia chief executive Matt Comyn on their fossil fuel lending policies.

Black said they needed to stop lending to fossil fuel companies, and he was sick of the “greenwashing” by both banks.

McEwan said NAB’s lending was transitioning from fossil fuels to renewables.

Comyn said: “I think the simplest explanation is we’ve committed not only to Paris but also to limiting temperature increases to 1½ degrees.

“In terms of our exposure to fossil fuels, they’re less than 2 per cent of our balance sheet. We’ve got a $1 trillion balance sheet, [so] our actual exposure to fossil fuels is very low.

“We have to act in the country’s overall best interests, which also means we have to make sure there’s a secure energy platform. This year, we will publish glide paths to meet that 1½ degrees energy transition, it’ll show that we’re below the glide paths that we’re required to meet.

“So, to give you a simple explanation, thermal coal would be down by more than 15 per cent with less than $100 million of exposure to lending.

“There’s a big difference, though, in terms of the role that gas is going to play potentially versus thermal coal, and I know, understandably, you’re looking for a really simple answer.

“But the broader answer is, we’re doing a lot to make sure that we’re going to meet the energy transition, and also the timelines and specifically the targets.”

Behind the curve on assessing emissions

But Wayne Byres, chairman of the Australian Prudential Regulation Authority, said a survey of 64 medium-to-large APRA-regulated companies, including 21 of the largest banks, found a lack of uniformity in assessing carbon emissions.

About half of the banks surveyed were assessing the emissions from their lending exposures.

Byres said the absence of these metrics created two challenges.

“First, it makes it difficult for banks to properly understand how borrowers will [or will not] be impacted by the transition to a lower carbon world.

“And second, it makes it difficult for banks to satisfy the increasing demands from investors, standard-setters and peer regulators for greater climate risk disclosure.”

‘Very different environment’

On the theme of credit quality, McEwan said NAB was closely monitoring its construction sector lending because of rising costs and fixed-price contracts that were signed before inflation took off.

Byres warned of the potential impact of higher interest rates on home loan borrowers who had entered the market in the past few years.

“We are now entering a very different environment than has existed for much of the past decade,” he said.

“The faster-than-expected emergence of higher inflation and interest rates will have a significant impact on many mortgage borrowers, with pockets of stress likely, particularly if interest rates rise quickly and, as expected, housing prices fall.

“Of particular note will be residential mortgage borrowers who took advantage of very low fixed rates over the past couple of years and may face a sizeable ‘repayment ‘shock’ [possibly compounded by negative equity] when they need to refinance in the next year or two.”

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